Piercing the Monetary Veil

Piercing the Monetary Veil

NB: This post is part of the “Piercing the Monetary Veil” symposium. Other contributions can be found here.

Luke Herrine —

This blog has already hosted several examples of re-thinkings of the nature of money and its relationship to law and power, most recently in a symposium on LPE Contributor Mehrsa Baradaran’s book on money and Black capitalism. This may seem like a niche project that those without an interest in finance can afford to ignore or leave to others. But that would be to ignore a fundamental principle: cash rules everything around us. Especially in capitalist societies, power is channeled through money and vice versa.

And justifications of power rely on mystification about money. If anything can be called the core of the neoliberal project it is the proposition that cash should rule us. Hayek’s foundational argument, after all, is that allocation via the price mechanism is the essence self governance. Making all resources and activities interchangeable with money enables each person to pursue her own version of the good life in a way that interferes with others’ only as much as they consent to while simultaneously directing resources towards their most valuable use (see here for instance). Payment of money is how we each individually express how much we value different resources and how much of others’ interference we are willing to bear. Price is the aggregation of those individual valuations. Money thus serves as the common currency that enables us to commensurate our processes of valuation without deliberating and without forcing anything on anybody else.

But that’s not how money works. Treating money as a neutral arbiter of values that the legal system can simply take for granted is a classic example of “transcendental nonsense“. As with any form of such nonsense, explaining why requires a careful analysis of how law structures money, tracing who has the power to shape that law, and exploring the dialectic relationship between the law, money, and the markets they coordinate. A small but growing group of scholars has been undertaking this task. Many of these scholars have begun to converge in a new international network called the Law and Money Initiative. An overlapping group will also be launching a new site at just-money.org.

Over the next two weeks, we will host a symposium on how close attention to the role of money in law and political economy changes one’s analysis of a whole range of areas of society, with a particular focus on how the legal infrastructure of money shapes areas of non-financial law. The idea is to open up conversations about how power shapes law to conversations about how money and law shape each other, and vice versa.

Join us!

Luke Herrine is a PhD Student at Yale Law School.

The Impact and Malleability of Money Design

Christine Desan –

9780674970953Mehrsa Baradaran’s book teaches us that money has a color, an arresting proposition to fans and foes of capitalism alike.   As she points out, economic orthodoxy posits that the transactional medium is itself a formal instrument:  money expresses but does not affect the value of the substances it measures.  Critics of that orthodoxy agree even as they bemoan the results:  money denies through its very impersonality the social substrate of exchange.  Against that commonsense, Baradaran directs us to consider how the institutions of money creation in the United States – commercial banks – have systemically originated money in white hands over decades.  That is, considering money as a process – asking how value is packaged into the everyday units we call dollars and injected into circulation – reveals that we have designed a market that is racially discriminatory in its very medium.

Baradaran challenges us to recognize how much determinations about money’s design matter.  That proposition is particularly striking because they are also remarkably malleable:  altering the institutions that deliver credit in money can change the way people and groups relate to one another.  I want to underscore Baradaran’s argument about the practice of black banking by exploring an alternative vision.  Only when the monetary project of the agrarian populists failed did Americans settle on the exclusionary system that Baradaran describes.  The contrast suggests that designing money is shaping community; it can bring people together or set them at each other’s throats.

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Central Banking and Finance—The Franchise View

Robert Hockett & Saule Omarova—

It is common to claim that finance is about ‘credit-intermediation,’ a matter of channeling funds from virtuous savers to needful end-users. The picture behind this assertion is that of a gargantuan broker—the financial system as ‘go-between.’ But modern financial systems are much more about credit-generation than intermediation. We need a new metaphor.

In our view, a modern financial system is best modeled as a public-private franchise arrangement. The franchisor is the sovereign public, acting through its central bank or monetary authority. The franchised good is the monetized full faith and credit of the sovereign—its ‘money.’ And the franchisees are those private sector institutions that are licensed by the public to dispense, in the form of spendable credit, the franchised good.

Like any good franchisor, a public acting through its central bank works to maintain the ‘quality’ of the good that its franchisees distribute. In the contemporary ‘developed’ world, the quality in question has been understood primarily in terms of over-issuance.

The central bank’s task has been understood, that is to say, in modulatory terms, the primary objective being to prevent consumer and, in some enlightened jurisdictions, asset price inflations and hyperinflations. Allocative decisions, for their part, are thought best left to the market, on the putative ground that the public’s ‘picking winners and losers’ is apt to be ‘politically arbitrary’ rather than ‘financially sound.’

Two conceptual errors, one of them partly corrected since 2008, seem to have hampered the ‘quality control’ efficacy of many central banks and monetary authorities in the pre-2008 period.

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